Crescent Biopharma Inc (CBIO) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Targacept Incorporated earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded for replay purposes. I'd now like to hand the call off to Mr. Alan Musso, Senior Vice President of Finance and Administration and Chief Financial Officer.

Thank you, Jonathan, and good afternoon everyone. Before we get started, I'd like to remind you that our comments may include forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events, plans, expectations, objectives, or financial results or conditions including for any of our product candidates, design and scope of clinical trials, the timing for initiation or completion of or availability of results from clinical trials, the timing for submission for approval of regulatory filing, target indications for development or the commercial opportunity as well as payments to us, our cash runway, revenues or expenses or any other matter that is not a historical fact.

Actual results may differ materially from those expressed or implied by any forward-looking statements as a result of many factors including those described under the heading forward-looking statements in our press release from earlier today, or under the heading risk factors in our most recent 10-K or in later SEC filings. We caution you not to place undue reliance on any forward-looking statements. Also, for any forward-looking statement that we make speaks only as of today and should not be relied upon as representing our views as of any future date. We disclaim any obligation to update any forward-looking statements except as required by applicable law.

I'll turn the call over to Dr. Don deBethizy, our President and Chief Executive Officer.

Thanks, Alan. Good afternoon and thank you for joining us today. Dr. David Hosford, Targacept's Vice President of Clinical Development is also here with Alan and me today. This afternoon we issued a press release reporting our fourth quarter and year end financial results, outlining recent business highlights and providing program updates. We will spend a few minutes reviewing key elements from the release and will then welcome your questions. Let me start by saying how pleased I am with the progress that we made in 2010 in the development of our pipeline of NNR Therapeutics to help patients with difficult to treat nervous system diseases and disorders. And, 2011 has really gotten off to a great start.

Now, let me update you on our Phase III depression program. In June 2010, we and AstraZeneca initiated the Renaissance Program a group of four, Phase III double blind placebo controlled studies designed to assess the efficacy and safety of TC-5214 as an adjunct treatment in patients with MDD who do not respond adequately to initial antidepressant therapy with either an SSRI or SNRI. Plus, a long term safety study in which patients received 5214 or placebo for up to one year. The study designed for the Renaissance Program borrows heavily from the positive Phase IIB clinical trial for TC-2514 that we conducted. And, we continue to work very closely with AstraZeneca and Quintiles the contract research organization for the clinical program, to ensure that it is executed with a rigorous emphasis on quality and a key eye on time to market. I'm pleased to report that the teams planning and focused efforts has led to the completion of enrollment in the long term safety study, a critical path item on the development timeline. With randomization of over 800 patients at over 100 centers in the US.

The Renaissance Program's other studies are actively recruiting and we continue to expect AstraZeneca to file a new drug application with the FDA for TC-5214 as an adjunct therapy in the second half of 2012. In addition to the Renaissance Program, we announced earlier this week the start of a Phase IIB study of TC-5214 as a switch mono-therapy. In this clinical trial, rather than receiving 5214 or placebo, in addition to continued antidepressant treatment, patients who did not respond adequately to the initial treatment are switched to receive TC-5214 or placebo alone. The study is designed to enroll approximately 350 patients into its double blind Phase from approximately 75 centers worldwide. We expect top line results from this study to be available by mid-2012.

Cognitive disorders continue to be an important focus area for us, and the unmet need to create an imperative for better treatment options for millions of afflicted patients. Our pipeline for this therapeutic area includes three distinct Phase II product candidates. We recently reported positive top line results in a Phase II trial of the highly selective Alpha 7 NNR modulator TC-5619 in cognitive dysfunction in schizophrenia or CDS. Bolstering our belief in the promise of NNR Therapeutics in cognitive disorders. In the study, 5619 met the protocol defined success criteria on the primary efficacy outcome measure, the Groton Maze Learning Task, of the CogState schizophrenia battery, which assess executive function, an important component of cognition.

We are also encouraged by the results seen on some of the trials secondary efficacy outcome measures, including both the investigator rated assessments like the scale for assessment of negative systems and the clinical global improvement scale and the subject rated scale called subject global impression cognition. As we announced previously, we are continuing to analyze the full data set from the study and look forward to presenting more detailed results. We've been invited to participate in the international conference on schizophrenia research in early April and believe that it will be an excellent forum to review the outcomes with thought leaders in this important area where there are currently no approved medications.

With the positive outcome from the CDS trial, AstraZeneca has the right to license TC-5619 on predefined terms and we expect a decision in the first half of this year. A positive licensing decision would trigger a $30 million payment to us and make us eligible for up to $212 million in additional downstream milestone payments across three indications and step double digit royalties. In addition to cognitive dysfunction schizophrenia, TC-5619 is in parallel development for other conditions that, together, affect over 50 million patients worldwide and where currently available therapies either have safety or efficacy limitations. We expect to announce top line results from our Phase II study in adults with ADHD later this quarter and we are continuing to execute clinical and non clinical studies designed to enable potential additional Phase II development in Alzheimer's disease.

Our cognitive disorders program also includes the Alpha 4 Beta 2 NNR modulators, AZD3480 and AZD1446. As we proceed towards advancement decision by AstraZeneca for each of these product candidates expected later in 2011, we are pleased to have agreed with AstraZeneca on respective roles and responsibilities for a potential additional clinical trial of AZD3480 in Alzheimer's disease that we would conduct and for which we would receive up to an additional $5.7 million from AstraZeneca. Now, finally, I'd like to spend a few minutes talking about the breadth of application for NNR Therapeutics targets.

Many of you joined us on our NNR research development day in New Year in December. Where leading experts in the field talked about developments in the NNR space and the scientific rationale for NNR Therapeutics as treatments in various disease areas. One such area highlighted that day very memorably by Dr. Kevin Tracy of the Feinstein Institute, is inflammatory disorders where a number of published scientific studies support the therapeutic potential of compounds that modulate in the Alpha 7 NNR. We share this enthusiasm and are pleased to have recently initiated two Phase II studies, one in asthma and one in type two diabetes with TC-6987. 6987 is an Alpha 7 NNR modulator discovered by Targacept scientists using our proprietary computational drug design platform known as Pentad and the start of these learning trials signifies the expansion of our scientific focus beyond the central nervous system and into the peripheral nervous system. Our goal is to complete both of these studies by the end of the year.

Now, in summary, I'm very pleased with the opportunity in our pipeline and the progress we made in 2010. We continue to recognize the potential of NNR Therapeutics and are committed to remaining at the forefront of NNR research. And, with that, I will turn the call over to Alan to review our financial results.

Thank you, Don. Through a continued emphasis on capital efficiency and prudent management of expenses, we entered 2011 with $252.5 million in cash, cash equivalents, and investments. For the fourth quarter of 2010, we reported a net loss of $2.2 million compared to a net loss of $26.4 million for the fourth quarter of 2009. And, for the year ended December 31, 2010, we reported net income of $10.9 million compared to a net loss of $39.4 million for 2009.

The improved financial results were principally due to the recognition into revenue for both 2010 periods of a portion of the $200 million upfront payment from AstraZeneca under a December 2009 collaboration and license agreement for TC-5214 and to the recording of a corresponding license fee obligation to the University of South Florida research foundation of $16 million for the fourth quarter of 2009.

Moving to our financial guidance, based on our current operating plans, we expect for the year ending December 31, 2011, that our net operating revenues will be in the range of $80 million to $90 million and our operating expenses will be in the range of $105 million to $115 million. And, our cash, cash equivalents and investment balance at the end of 2011 will be at least $150 million. Also, we continue to expect that our current cash resources will allow us to meet our operating requirement through at least the end of 2013. This financial guidance includes both cash and non cash revenue and expense items and does not include amounts that we could receive if any milestones are achieved under our agreement with AstraZeneca for TC-5214 or if AstraZeneca chooses to exercise its right to license TC-5619. And, with that, I'll turn the call back over to Don.

Thanks, Alan. Let me just say that we are excited for what we believe may be another transformational year for Targacept in 2011, as we progress our clinical and pre-clinical programs towards our goal of building health and restoring independence for patients. And, with that, we'll open up the call for questions.

(Operator Instructions) Your first question is from the line of Joel Sendek with Lazard Capital Markets. Please proceed, sir.

Hi. Thank you a lot. I had a question about 5214 so I'm a little bit confused on which of the -- or help us figure out which of the studies might we get data on by the end of the year? Do you have any feel for that?

The timeline is set up so that we're expecting that at least one of the pivotal trials will be delivering top line results by the end of 2011. The long term safety trial is the one that has a longer exposure time, so we needed to get it enrolled and fully enrolled which we have done and we'll report out in 2012.

Okay. As far as the pivotal studies, it's not like you're seeing one enroll quicker than one of the other ones or something like that? Everything is progressing as planned?

Everything is progressing as planned. We'll provide more detail as the year progresses. But our guidance is the same as it's been. We're on track for reporting the first top line results out by year end.

And then on 5619 can you talk a little bit about the geographical differences why the patients in the US did a little bit better than the patients from India?

I'll let David Hosford, Dr. Hosford, talk about that a little bit.

There are a number of hypotheses that we have about that and we're still digging in the data to try to mine it for some clues as to why this would be the case. We used a culturally neutral instrument, CogState test battery which is a computerized touch screen system and so we don't think that played a role. In other words, subjects are as easily trainable in a country like India as they are in a country like the US to operate that particular instrument. There was a little bit of greater variability of results from India and we're still probing that. One other possible source of sort of answer that might explain the difference is that as you may know, smoking among schizophrenics occurs at a higher rate in the US than it does in India, that's what we found in this study too. And the results were, as we announced, stronger in smokers of which there were more in the US sub-fraction of the population than there were in the Indian one. So that's the most likely explanation that we have right now. But we are digging into the data a little bit more.

Great. Thank you a lot. .

Your next question is from the line of Robyn Karnauskas with Deutsche Bank.

Thank you for taking my question. I guess the first question I had was on the pivotal studies for depression. You had mentioned previously that there was going to be checks in place to make sure that patients who were enrolling like an independent check of 20% of the population to make sure that the patients enrolling were truly depressed. How much visibility do you have into how those checks are going?

I'll let David speak to that.

The checks are going very well. We have weekly meetings between Quintiles, AstraZeneca, and ourselves as well as the vendors such as Clinterra which is performing one of these types of checks. And we're constantly reviewing the data that they have. They are finding a very small proportion of patients which are being screened failed because they don't appear to meet the criteria in the opinion of the independent psychiatrists who are conducting these tests compared to the staff of the sites where those patients had been enrolled.

So, they're meeting their goals. We are fishing out patients who are perhaps a little bit closer to the edge in terms of eligibility. That's one of the measures to ensure that subjects who come into the trials have high quality. Another measure is being used by another of our vendors and that's UBC. What they do is look for concordance between homologous types of ratings so they look for concordance between the MADRS rating and the HAM-D rating and they look for concordance between those ratings and the rating of severity by the investigator. And when they see what appears to be a bit of discordance, they have discussions with the staff at the sites in order to clarify why that may be. So, we have a number of these types of quality measures that are in place, and they do appear to be meeting their objectives.

Are they above or below your expectations or in line with what you expected going into the trial?

They're about in line with what we expected. We've been pleasantly receptive of the fact that they're not worse than what we had expected. They're about in line with what we expected.

And I guess my next question is on 5619 and ADHD. Since you have data coming out by the end of the first quarter, can you give us some -- help us understand what would be good data in ADHD? What would make you excited about the program?

Let me just say that one of the things we've been doing is we're first in class, first of all. And these -- and these two trials that we were running in parallel, this CDS trial and ADHD trial are the first time we've been in patient. We have both a primary end point which is the Conners ADHD rating scale for adults. But we also have a battery of secondary end points. Ideally, we'd like to hit the primary end point and we're hopeful that we will. We also want to reserve the possibility that this Alpha 7 compound will manifest its effect in a broader way or a different way. I think from an expectation setting, we have enough pre-clinical data, enough Phase I data to indicate that we have an intentional effect. We picked it up in Phase I, we picked it up at one of the doses that we're using in this trial. We bracketed the dose where we saw that in healthy normal adults. And we're hopeful that we will see a difference manifest itself in an improvement in the symptoms of adult ADHD.

So I think that's -- you know, it's a classic design, we're probing dose as well as time. And just like we did in the CDS trial. We had argued with -- or we had discussed with AZ and really we're advocates for parallel development so that we could increase our probability of success and it was driven by the enthusiasm generated from the Phase I observation. So we're all hopeful that it will work in ADHD. I'm still managing expectations somewhat and I have no view to the data at all, I'm just doing the same thing I did before the CDS trial outcome which is to make sure people recognize that when you have first in class mechanism in a new indication in a new patient population that you have to be open minded about where you see the effect.

Can you help us understand the Alpha 7 6987 versus the 5619 Alpha 7, the one that you've moved into diabetes and asthma with ADHD and schizophrenia?

Sure. Those compounds come from different chemical frameworks. They have somewhat different pharmacology. We had always recognized that opportunities for the two low hanging fruit areas for Alpha 7 compounds were cognition and inflammatory disorders. Kevin Tracy's paper in Nature several years ago really stimulated the research environment to look seriously into Alpha 7 for modulating neuroinflammatory disorders, and the hallmark relationship back to nicotine was around ulcerative colitis where Bill Sanborn at the Mayo Clinic had demonstrated that nicotine patches and nicotine enemas could actually treat ulcerative colitis. We've always been interested in this area. We had to make a decision early on about where we took our first Alpha 7 compound and we thought that cognition was the most important area at the time and the best developed. So we took 5619 into -- put it into the option agreement with AZ for cognition. And then over time we were able to secure the wherewithal to be able to move a second Alpha7 forward. And then with the -- when we struck the deal with AZ in depression and got the large up front payment it allowed us to really move forward in a serious way into this other area of inflammatory disorder.

Mostly, they're just different in their chemical framework and in their pharmacology somewhat. They're both target Alpha 7 and we're hopeful that -- and we believe that the therapeutic index on both those compounds is pretty remarkable. The selectivity that we've been able to generate with no hurt channel interaction no 5-HT3 off target activity, and the pharmacokinetics and other drug ability features of both those molecules is outstanding. We're very hopeful, again this will be first time in patients. We have a -- we've decided on primary end points in both of those inflammatory disorder trials. But we also have a battery of secondary end points to be able to characterize the biological activity.

Thank you so much.

Your next question is from the line of Bret Holley with Oppenheimer. Go ahead.

This is Jay Taylor on Brett's behalf. Thank you for taking the questions. Following up on the last bit about 5619, I was just sort of curious strategically how you would contrast that and 3480 being as you're going to have two compounds, slightly different theoretically both potentially partner with AZ for AD and ADHD. Is there one that you would favor? Or can they be fit into a program together?

I think 3480 is a compound focused on Alpha 4 Beta 2, there's been a lot of work done in cognition around Alpha 4 Beta 2 over the years. There's a large literature around, strong intentional effects with Alpha 4 Beta 2 targeted compounds. We've demonstrated broader cognition effects both in working memory as well as episodic and longer term memory as well as speed of thinking with 3480. We've been in over 1400 subjects and patients with that compound. So we believe that in that area, in the Alpha 4 Beta 2 area there's great promise and it may be that the two different mechanisms start to sort out as to where they might be best focused. At this point, it's too early to do that. I think that's the reason we argued for broad development of both 3480, and if you remember we did trials with AstraZeneca and Alzheimer's disease and cognitive dysfunction schizophrenia, as well as ADHD and we're doing the same thing with the Alpha 7 compound. People have hypotheses where they believe these respective mechanisms will work, but at this point I'm neutral on it and waiting to see the clinical data.

Okay, great, and then one quick follow-up on 6987 for the asthma trial, are you going to do it in sort of like severe uncontrolled asthma and what kind of end points would you use for Phase II, is it like exacerbation?

I'll let Doctor Hosford speak to that.

It's with patients with mild to moderate persistent asthma and we're looking at traditional end points that have been used by other drugs that have been approved for use in these patients, primarily the change in forced expiratory volume over 1 second, the FEV1 and a variety of other secondary end points and some experimental ones. As Don was pointing out, we're still trying to profile this compound, so we're looking at as many different pieces of information as we can get out of a learning trial in this area.

Okay, great, thank you. .

Your next question is from the line of Juan Sanchez with Ladenburg. Please proceed, sir.

Good evening. Hello. I have a question about the 5619 program. Can you refresh my memory on why you chose the Groton Maze Learning Task as the primary end point? And what happened in this trial with the other task? Do you see negative trends in the analysis in the other tasks? And at this point which dose do you think -- do you learn something from these trials about what the right dose could be to move forward?

I'll just speak generally about it and then I'll have Doctor Hosford fill in some detail. We're very pleased that we got the direct effect on the executive function that is measured by the Groton Maze Learning Task. We had gotten a lot of advice as you know that should be our primary end point both from AstraZeneca, KOLs as well as CogState. We have been as you know we've been working through the analysis of the other individual components and we're hopeful that we'll be able to show a consistent effect in cognition, but we also recognize that executive function and the disruption of executive function unique to schizophrenia and cognitive dysfunction may be completely separate from normal cognitive function in normal, healthy human beings. So, I don't know where all that is going to come out yet, but we're encouraged by early analyses that we're doing that we're getting a consistent and intellectually satisfying response. So I think David if you want to add anything to that?

Sure. In cognitive dysfunction and schizophrenia, there are really no anti-psychotics that are currently used that work to any great extent. And it's that cognitive dysfunction that keeps schizophrenic patients, even when they're positive symptoms, their delusions and hallucinations are controlled from regaining a pre-morbid level of functioning. That's really the reason we went after that. And as Don was saying, executive function is one of the areas which is profoundly disturbed in these patients. They don't have the ability to plan and organize and to achieve a goal like you and I would. If we can help them, in that regard that would be quite a medical need that would be filled. The reason we chose this Groton Maze is that it is a good test of executive function.

It's very simple to do, can be done on a computerized touch screen. And it maps into the same type of executive function domain that some other batteries such as the matrix would do. As Don said, we were recommended to use that by a number of different people. Regarding dose, we're still exploring dose effects. We use three different doses in the trial, each for four weeks during the twelve week treatment period. And so we're looking into the effects we got on each particular end point at each particular point in time to get a better idea about dose.

Alright. Thank you. One last question about 5214 and the switch monotherapy trial. What level of optimism which you have about this trial? What's the historical evidence from the lapse of earlier compounds on the potential approach to the depression?

What I can say is that we know from pre-clinical studies that 5214 will work in animal models of depression as a stand alone compound. And if we extrapolate from the tobacco literature and the role of nicotine in mood stabilization and all of that, we know that all of that works -- the desensitization of the nicotinic receptor by nicotine producing mood stabilization is working as a monotherapy if you will, as an individual compound. We're hopeful and I think there's reasonable belief that it will. Our primary interest has been in the augmentation area. But it's important for us to understand how 5214 will work as a monotherapy. The other motivation behind it is in -- as we move into the European regulatory environment, it would be helpful to understand how the compound performs as a monotherapy in terms of designing some of the trials that are going to be specific for European approval.

Did it work in animals at the same doses or different ones?

Generally, the doses don't translate exactly. There's of course size and metabolism differences. But we have reasonable correlation for dose. And we arrived at our dose levels from a lot of different directions, the off label use originally of Inversine by autistic and Tourette's patients, as well as our pre-clinical doses.

Awesome. Thank you, guys.

(Operator Instructions)

Your next question is from the line of Alan Carr with Needham & Company. Please proceed, sir.

Hello, good afternoon everyone. Thank you for taking my question. Wondering if you can give us a bit more detail around 1446, 3480 and what AstraZeneca is up to and I guess another element to this is what's the likelihood that you all will be doing a 3480 Alzheimer's trial yourselves?

Let me just speak about 1446, we had originally disclosed that AZ had four different kinds of early clinical trials that they were doing. And this last one has taken longer than we expected. So we're just waiting for those trial results to come out and we've moved out the date for decisions on 1446. Let's just set that aside for right now. There's nothing that's changed about that other than the fourth trial being delayed in reporting out its data. And AstraZeneca has said all along that we wanted to wait until we had those results so that they could see all the data. On 3480 as you know we've had this interest in 3480 for a long time to move it into Alzheimer's disease. We were able to successfully negotiate as we described in my prepared remarks a mechanism by which we could do that trial. And we also have had some positive interaction with FDA that I'll let David describe.

Sure. We had a meeting with the agency a couple of months ago. They endorsed the design of the study as well as what a potential development plan might look like going forward. There was good dialogue back and forth. And actually, Bob Temple was not designed to be at the meeting but wanted to attend because he was very interested in the plan. We had good feedback not only from [Tax] but also from Temple. We came away feeling good about what we had planned and what the agency also agreed looked like something that would work.

So we have -- we're enthusiastic about the opportunity. We still have some hurdles to get through in terms of working through and actually getting a trial initiated. But we're hopeful that we'll get through those. And we've just been sort of modest about how we describe it so that in case we encounter any other road blocks as we go forward. We're hopeful that we'll be able to get an Alzheimer's trial started in 2011.

So, the $5.7 million that you referred to before might be some funds from AstraZeneca to support that trial?

Yes. Our-- we have a very good relationship with AstraZeneca in our cognition program. They're supportive of us doing a trial like this and we were able to work out an arrangement within our current license agreement that would allow us -- for them to largely fund the Alzheimer's trial in 3480 going forward.

Might this be a one year trial or a six month trial? Are you leaning one way or the other at this point?

I'll let David comment on that.

Yes. It's currently envisioned to be a one year monotherapy trial.

Last thing, 6499 and IBS. What more can you tell us about that? Is that something we should be excited about and also curious about the mechanism. You've spoken about Alpha 7 being involved in inflammation, but I think 6499 is an Alpha 4 Beta 2?

As you know, we continue to sort of mine our clinical stage pipeline for opportunity. And for those who remember, 6499 was originally in development for pain during the Phase I. We saw some very rapid GI motility and our very clever scientists and physicians recognized that it might have utility in some GI condition. So we've been exploring that and we are -- we just haven't been disclosing much about it yet because it's in its early stages. We're trying to figure out what the opportunity looks like. And we'll be disclosing more about it as we learn more about it. You are right to point out that we -- that is in the wings. At this point, we're encouraged by what we've done so far. And before we start raising expectations around it, we want to make sure that we understand and that we've fully vetted the data and all of the path forward that we have.

Understood, thank you very much.

And with no further questions in queue, I'd like to hand the call back to Doctor Don deBethizy, President and Chief Executive Officer.

Jonathan, thank you. It's always great to get to speak to our investors and analysts and it's especially great to be able to do that at the beginning of year in 2011. I think we've been over the many years that we've been a public company we've been promising great things for the -- in our therapeutic area. And I think we are really starting to come into our own around the broad potential that we had envisioned many, many years ago. All I can say is stay tuned this year and I think it's going to be a very exciting year. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's presentation. The call is ended. You may now disconnect. Have a good evening.